RBI Lowers Repo Rate to 6%, Lowers Inflation and GDP Estimates in the Wake of Global Trade Worries
The Reserve Bank of India (RBI) has lowered the policy repo rate by 25 basis points, reducing it to 6 percent. This move, meant to lower the cost of borrowing and boost economic growth, comes in the wake of the United States recently imposing reciprocal tariffs on Indian imports.
The decision followed the end of RBI’s three-day Monetary Policy Committee (MPC) meeting that commenced on April 7. The panel, comprising three deputy governors, decided by consensus in favour of reducing the lending rate, in consideration of a minute evaluation of macroeconomic and financial situations.
With this decline, lending is cheaper for banks, allowing them to lend to retail customers at lower rates of interest. Therefore, equated monthly installments (EMIs) on different kinds of loans are bound to come down, offering relief to borrowers.
Apart from the cut in interest rates, the MPC also changed its policy stance to “accommodative” from “neutral.” This move signals a willingness to further boost economic activity if the need arises. The committee emphasised the need to keep an eye on the changing economic environment and respond suitably to any further developments that might arise.
In the investment sector, recovery has been witnessed, led by better capacity utilisation. This is likely to be sustained, which would have a positive impact on the overall economic scenario.
Yet, the RBI has downgraded its GDP growth estimate for FY 2025–26, reducing it from 6.7 percent to 6.5 percent. In parallel, inflation is set to moderate. The inflation forecast for the said period has also been lowered from the previous 4.2 percent to 4 percent, reflecting enhanced price stability.
Its policy initiatives having widened, the RBI has now broadened the scope of co-lending from priority sector loans to other areas as well. This will likely stimulate greater credit availability and benefit different sectors of the economy.
Also, the central bank has suggested that the National Payments Corporation of India (NPCI) look into increasing the UPI transaction limit for person-to-merchant payments in line with the ongoing economic requirements. The aim is to encourage non-inflationary growth supported by higher demand and a stable macroeconomic climate.
This policy revelation is made against the backdrop of recent trade tensions, especially the 26 percent bilateral tariffs on Indian exports by the United States, which have come into force as of today.
